About to explode in the UK, this' time bomb 'loan | mortgage | UK
According to the website of The Economist in Spain on June 6th, the huge "time bomb" of mortgage loans is about to explode in the UK.
At a time when most real estate markets are experiencing turbulence after several months of significant interest rate hikes, the UK market is hiding a true "time bomb" - as the country's media believe - and it is about to explode. In recent years, the popularity of fixed rate mortgage loans means that for up to 4 million households, the worst-case scenario has not yet arrived.
The Bank of England has raised interest rates 12 times in a row, rising from 0.1% at the end of 2021 to 4.5% on May 11 this year, in response to stubborn high inflation. The country's consumer price index has remained in double digits for over six consecutive months, reaching a 40 year high. Since experiencing fluctuations in the interest rate environment in the late 1980s, British households have never faced such a large-scale interest rate hike.
However, British families have not yet felt the full impact. The era of ultra-low interest rates has greatly increased the number of fixed rate mortgage loans, which has not yet caused significant damage. But in the coming months, when these mortgage loans suddenly become floating or need to be renegotiated to maintain fixed rates, homebuyers will see a surge in their loan interest and repayment amounts.
Chris Turner, an analyst at Dutch Commercial Bank, warned in a report to clients on the 6th that "British media has put a lot of effort into reporting on the 'time bomb' issue of mortgage loans in the UK. Over 600000 mortgage borrowers will need to refinance in the next 6 months and may be forced to pay extra interest on their mortgage loans."
The Bank of England estimates that approximately 1.3 million households will have to adjust their mortgage loans between April and December 2023. The bank stated in its latest monetary policy report, "For mortgage borrowers in this group, the average monthly interest payments will increase by about £ 200."
Although this has been a potential reality that people have been worried about for months, a recent study by the renowned think tank Resolution Foundation, signed by economist Simon Pitaway, has heightened public anxiety.
This report released last month pointed out that although interest rates are approaching their highest levels, so far only half of the households that will ultimately be affected have been hurt, and these families have only felt one-third of the pain they will bear.
The impact of bank interest rates on mortgage loan rates is one of the main ways in which households are influenced by monetary policy decisions. According to the study, in 2022, the total amount of mortgage debt in the UK accounted for about two-thirds of the country's GDP, while in the entire 1990s, this total debt was less than half of GDP. However, in the past 20 years, the increasing popularity of fixed rate mortgage loans has delayed the impact of rising interest rates on the mortgage interest payments made by households.
